Cross River Bank Reaches Settlement with Colorado Regarding FinTech Partnerships
As regular FinTech sector watchers can tell you, there are a handful of company names that tend to come up again and again when new initiatives and partnerships are announced. Cross River Bank is certainly in this category as the institution is a frequent partner for startups. Now, thanks to their part in a recent suit, the bank may have also just played a role in defining how such partnerships are defined and regulated.
This past week, the Fort Lee, New Jersey-based bank Cross River reached an agreement with the state of Colorado and its Attorney General Phil Weiser in a bid to settle the litigation regarding the nature of “true lender.” In a press release, the bank heralded this settlement as a step forward for the FinTech partnership model and stated that it sets a regulatory framework that could be applied in other jurisdictions.
Although Cross River wasn’t named in the original litigation — which was first filed against the bank’s partner Marlette Funding — their interest (and later insertion) in the case is understandable. For the past decade, the bank has been among a handful of small institutions that have become frequent collaborators for FinTech startups. As a chartered bank, Cross River and others can provide customers with FDIC insured accounts as well as loans — which is what this particular suit was about.
Among the many FinTechs Cross River has partnered with in recent years are such luminaries as Stripe, Upgrade, Betterment, Wealthfront, Kabbage, and more. In the case of Upgrade, the bank helped the online lender to launch their unique credit card offering. As for Betterment and Wealthfront, Cross River happens to be a partner bank (among several others) for both roboadvisor platforms’ digital banking accounts. Meanwhile, Kabbage also recently turned to Cross River to get their Paycheck Protection Program lending off the ground before the lender could secure its own SBA approval.
Commenting on the settlement and its implications, Cross River founder, president, and CEO Gilles Gade stated, “This agreement serves to confirm the validity of the consumer lending model Cross River has been utilizing since inception.” The bank’s EVP and general counsel Arlen Gelbard elaborated, saying, “State-chartered and regulated by the FDIC, we completely understand our role and responsibility for regulatory compliance and consumer protection, and this groundbreaking resolution solidifies a framework for innovative banks and their partners but is even more important for consumers. It includes consumer protection provisions that mandate rational interest rates and strikes a reasonable balance of oversight by the state without interfering with a bank’s ability to lend across the country.”
Incidentally, this settlement comes as the Office of the Comptroller of the Currency has also called for an evaluation of the current “true lender” rules. The OCC’s proposal would make it so that the “true lender” if it is named as the lender in the loan agreement or funds the loan. Currently the deadline for comment on this proposal is set for September.
Given the grey regulatory area that some FinTech activity has operated in for the past few years, Cross River’s agreement here does seem significant. Nevertheless, with this applying to just a single state, there’s no guarantee that we won’t see similar battles play out — even if more defined OCC rules are adopted. That said, hopefully, as Cross Banks suggests, this settlement can be used as a model for future regulation and partnerships between FinTech and banks are able to not only continue but expand.